SUNS  4308 Friday 23 October 1998



United States: Concern over rising protectionist pressure



Washington, Oct 22 (IPS/Jim Lobe) -- The U.S. government, having won a year-long fight to wrest $18 billion from Congress for the International Monetary Fund (IMF), has turned its attention to a
skyrocketing trade deficit - which may result in increased protectionist pressure here.

Strong protectionist measures could wreak havoc on the already-troubled global economy, much of which has gone into recession over the past year, according to financial analysts.

The United States, along with much of Western Europe, is currently the only major market capable of buying exports from struggling economies abroad.
The Clinton administration has dispatched US Trade Representative Charlene Barshefsky to Europe to exhort leaders there to open their markets wider to Russian and Asian exports so that Washington will not bear too much of the burden. Trade figures released this week suggest that this year's U.S. trade deficit could reach $175 billion.

The financial crisis, which began in Asia 15 months ago and then spread to Russia and Latin America, is being blamed for the fast-rising deficit which reached almost $17 billion in August, the worst performance since the Commerce Department adopted the current format in 1992.

While cheaper imports from Asia have begun flooding the U.S. market, austerity in Latin America other key emerging markets is drying up demand for U.S. exports abroad. Exports in August fell to their lowest level in almost two years.

Most analysts believe they may have to wait until next spring at least before any improvement is likely, while even some administration officials are projecting next year's deficit at as much as $300
billion.

"This isn't a blip," says Greg Mastel, a senior economist at the Economic Strategy Institute. "It's a two-, three-, maybe five-year trend of record numbers."

While the U.S. economy is still growing at a healthy pace and unemployment and inflation remain at historically low levels, fears of protectionism, particularly in politically sensitive sectors like steel, semiconductors and textiles, have begun to surface in business and trade publications.

"Our greatest area of concern is manufacturing," says Commerce Secretary William Daley. He points out that the trade deficit in manufactured goods is running about 33% higher than last year.

The country's receptivity to lowering trade barriers, a major thrust of the first six years of Clinton's presidency, already has diminished significantly since the 1993 of the North American Free Trade Agreement (NAFTA).

President Bill Clinton has been unable to get Congress to approve granting him "fast-track" authority to negotiate new free-trade agreements with Latin American and other emerging-market economies. Congress this year failed even to act on two relatively uncontroversial trade bills, designed to increase trade and investment with Africa and the countries of the Caribbean Basin.

Clinton says he will pursue all three initiatives next year, but some observers predict the administration may find itself on the defensive when it comes to any new trade measures.

"Despite the good times, the fact is that trade is not popular right now," says one administration official. "And an exploding trade deficit is only going to make it less popular."

In the meantime, pressure for protectionist action is mounting as the trade deficit rises. Reacting to a flood of steel imports that has forced production cuts and layoffs here , the U.S. steel industry and
union leaders have been running a high-profile public campaign for months to press the  administration and Congress to take action.
They also have filed formal legal cases against Japan, Russia and Brazil and are soon expected to file yet another action against South Korea for alleged dumping.

At the same time, the powerful farming lobby, whose members have been badly hit by falling grain prices this year, persuaded Congress and the administration to provide six billion dollars in new subsidies. U.S. automobile companies also are concerned about rapidly falling prices for Japanese and Korean motor vehicles. Next year's South Korean-made Elantra, for example, will cost about $1000 less than the 1998 model. At the same time, say trade officials, U.S. makes are still being kept out of the South Korean market, accounting for less than one percent of all vehicles purchased there last year.

Cheap textile imports from Indonesia and a sharp rise in apparel imports from Mexico and the Caribbean Basin also have been in the news in Washington where lobbyists for those industries are crying "foul."

U.S. policymakers point out that lower prices for imports from East Asian and other economies which have been forced to devalue their currencies are responsible in large part for the low inflation rates which continue to prevail here.

But, as U.S. companies are forced to compete with those imports, they will be forced to cut prices themselves, thus contributing to the deflationary wave which now threatens the global economy. The alternative for these companies is to cut production and lay off workers, which is certain to bolster protectionist forces here.

The administration so far has shown little enthusiasm for taking protectionist measures. But this week's trip by Barshefsky is one indication that it feels the pressure.

"There is a view in the United States that Europe is not doing its part with respect to absorbing imports, particularly from Asia," she said before her departure. "Slowly, we are seeing the US not only as the market of last resort, but as the market of first resort."